Social Choice and Welfare

, Volume 38, Issue 4, pp 553–567 | Cite as

Reconciling normative and behavioural economics: the problems to be solved

  • Ben McQuillin
  • Robert SugdenEmail author
Original Paper


We review the problem of reconciling normative and behavioural economics. In conventional welfare economics, individuals’ preferences are assumed to be coherent, and the satisfaction of those preferences is the normative criterion; but this approach breaks down if preferences are incoherent. Traditionally, the preference-satisfaction criterion has been interpreted in three conceptually different ways, emphasising respectively the normative value of happiness, self-assessed well-being, and freedom. If individuals’ preferences are incoherent, these interpretations diverge, leading to fundamentally different strategies for dealing with the reconciliation problem, and new questions are raised about whether normative economics should be addressed to governments or individuals.


Behavioural Economic Normative Criterion Cumulative Prospect Theory Libertarian Paternalism Consumer Sovereignty 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. Ariely D, Loewenstein G, Prelec D (2003) ‘Coherent arbitrariness’: stable demand curves without stable preferences. Q J Econ 118: 73–105CrossRefGoogle Scholar
  2. Berg N (2003) Normative behavioral economics. J Socio-Econ 32: 411–427CrossRefGoogle Scholar
  3. Berg N, Gigerenzer G (2010) As-if behavioral economics: neoclassical economics in disguise?. Hist Econ Ideas 18: 133–166Google Scholar
  4. Bernheim D, Rangel A (2007) Toward choice-theoretic foundations for behavioral welfare economics. Am Econ Rev Pap Proc 97: 464–470CrossRefGoogle Scholar
  5. Bernheim D, Rangel A (2009) Beyond revealed preference: choice-theoretic foundations for behavioral welfare economics. Q J Econ 124: 51–104CrossRefGoogle Scholar
  6. Binmore K (1999) Why experiment in economics?. Econ J 109: F16–24CrossRefGoogle Scholar
  7. Bleichrodt H, Pinto-Prades J-L, Wakker P (2001) Making descriptive use of prospect theory to improve the prescriptive use of expected utility. Manag Sci 47: 1498–1514CrossRefGoogle Scholar
  8. Buchanan JM, Tullock G (1962) The calculus of consent. Logical foundations of constitutional democracy. University of Michigan Press, Ann ArborGoogle Scholar
  9. Camerer C (1995) Individual decision making. In: Kagel JH, Roth AE (eds) The handbook of experimental economics. Princeton University Press, Princeton, pp 587–703Google Scholar
  10. Camerer C (2003) Behavioral game theory. Princeton University Press, PrincetonGoogle Scholar
  11. Camerer C, Issacharoff S, Loewenstein G, O’Donaghue T, Rabin M (2003) Regulation for conservatives: behavioral economics and the case for ‘asymmetric paternalism’. Univ PA Law Rev 151: 1211–1254CrossRefGoogle Scholar
  12. Diener E, Diener RB (2008) Happiness: unlocking the mysteries of psychological wealth. Wiley-Blackwell, MaldenGoogle Scholar
  13. Easterlin RA (1974) Does economic growth improve the human lot? Some empirical evidence. In: David PA, Reder MW (eds) Nations and households in economic growth: essays in honor of Moses Abramowitz. Academic Press, New York, pp 89–125Google Scholar
  14. Ellison G (2005) A model of add-on pricing. Q J Econ 120: 585–637Google Scholar
  15. Frey B, Stutzer A (2002) What can economists learn from happiness research?. J Econ Lit 40: 402–435CrossRefGoogle Scholar
  16. Gabaix X, Laibson D (2006) Shrouded attributes, consumer myopia, and information suppression in competitive markets. Q J Econ 121: 505–540CrossRefGoogle Scholar
  17. Gul F, Pesendorfer W (2007) Welfare without happiness. Am Econ Rev Pap Proc 97: 471–476CrossRefGoogle Scholar
  18. Güth W, Yaari ME (1992) Explaining reciprocal behavior in simple strategic games: an evolutionary approach. In: Witt U (ed) Explaining process and change: approaches to evolutionary economics. University of Michigan Press, Ann Arbor, pp 23–34Google Scholar
  19. Hayek F (1973) Law, legislation and liberty. Volume 1: rules and order. University of Chicago Press, ChicagoGoogle Scholar
  20. Kahneman, D, Tversky, A (eds) (2000) Choice, values, and frames. Cambridge University Press, CambridgeGoogle Scholar
  21. Kahneman D, Wakker P, Sarin R (1997) Back to Bentham? Explorations of experienced utility. Q J Econ 112: 375–405CrossRefGoogle Scholar
  22. Knetsch JL, Tang F-F, Thaler RH (2001) The endowment effect and repeated market trials: is the Vickrey auction demand revealing?. Exp Econ 4: 257–269Google Scholar
  23. Layard R (1980) Human satisfactions and public policy. Econ J 90: 737–750CrossRefGoogle Scholar
  24. Layard R (2005) Happiness: lessons from a new science. Allen Lane, LondonGoogle Scholar
  25. Loewenstein G (1999) The challenge of mountaineering ... for utility theory. Kyklos 52: 315–344CrossRefGoogle Scholar
  26. Loewenstein G, Ubel PA (2008) Hedonic adaptation and the role of decision and experience utility in public policy. J Public Econ 92: 1795–1810CrossRefGoogle Scholar
  27. Loomes G, Starmer C, Sugden R (2003) Do anomalies disappear in repeated markets?. Econ J 113: C 153–166CrossRefGoogle Scholar
  28. Manzini P, Mariotti M (2009) Choice based welfare economics for boundedly rational agents. Unpublished paperGoogle Scholar
  29. Nettle D (2006) Happiness: the science behind your smile. Oxford University Press, OxfordGoogle Scholar
  30. Plott CR (1996) Rational individual behaviour in markets and social choice processes: the discovered preference hypothesis. In: Kenneth JA, Colombatto E, Perlman M, Schmidt C (eds) The rational foundations of economic behaviour. Macmillan, Basingstoke, pp 225–250Google Scholar
  31. Salant Y, Rubinstein A (2008) (A, f): choice with frames. Rev Econ Stud 75: 1287–1296CrossRefGoogle Scholar
  32. Scitovsky T (1976) The Joyless economy: an inquiry into human satisfaction and dissatisfaction. Oxford University Press, New YorkGoogle Scholar
  33. Shogren J, Shin SY, Hayes D, Kliebenstein JB (1994) Resolving differences in willingness to pay and willingness to accept. Am Econ Rev 84: 255–270Google Scholar
  34. Smith VL (2008) Rationality in economics: constructivist and ecological forms. Cambridge University Press, CambridgeGoogle Scholar
  35. Sugden R (2004) The opportunity criterion: consumer sovereignty without the assumption of coherent preferences. Am Econ Rev 94: 1014–1033CrossRefGoogle Scholar
  36. Sugden R (2007) The value of opportunities over time when preferences are unstable. Soc Choice Welf 29: 665–682CrossRefGoogle Scholar
  37. Sugden R (2009) Market simulation and the provision of public goods: a non-paternalistic response to anomalies in environmental evaluation. J Environ Econ Manag 57((2009): 87–103CrossRefGoogle Scholar
  38. Sunstein CR, Thaler RH (2003) Libertarian paternalism is not an oxymoron. Univ Chic Law Rev 70: 1159–1202CrossRefGoogle Scholar
  39. Thaler RH, Sunstein CR (2008) Nudge: improving decisions about health, wealth, and happiness. Yale University Press, New HavenGoogle Scholar
  40. Tversky A, Kahneman D (1992) Advances in prospect theory: cumulative representation of uncertainty. J Risk Uncertain 5: 297–323CrossRefGoogle Scholar
  41. van Praag B (1968) Individual welfare functions and consumer behavior: a theory of rational irrationality. North-Holland, AmsterdamGoogle Scholar
  42. van Praag B, Baarsma B (2005) Using happiness surveys to value intangibles: the case of airport noise. Econ J 115: 224–246CrossRefGoogle Scholar
  43. Wilson C, Price CW (2010) Do consumers switch to the best supplier?. Oxford Economic Papers 62: 647–668CrossRefGoogle Scholar

Copyright information

© Springer-Verlag 2011

Authors and Affiliations

  1. 1.School of Economics and Centre for Competition PolicyUniversity of East AngliaNorwichUK

Personalised recommendations